Strategies for Cash and Trade Finance: Transaction Banking for Regional Banks in OECD and Non-OECD Countries

March 10, 2010
Industry Trends
Global, Asia-Pacific, EMEA, Latin America, North America

Abstract

Transaction banking requires significant investment in IT infrastructure, but what are the options for regional banks? The growth of open accounts is creating an opportunity for local banks.

Corporations are concentrating trade finance and cash management into a single interface, mainly due to large companies using open accounts and medium and small companies having a single interface. To understand the drivers for convergence, Celent conducted a survey among medium-size companies in Organization for Economic Co-operation and Development (OECD) countries and non-OECD countries to capture as much as possible about these companies’ experience with the corporate-bank relationship.

In this report, Strategies for Cash and Trade Finance, Celent assesses the current expectations of Asian and European SMEs, suggesting actionable items to regional and global banks on how to best serve their needs.

 

“Cash and trade are indeed converging because the lack of credit requires more attention to the dynamics of cash,” says Enrico Camerinelli, Senior Analyst with Celent’s Banking Group and author of the report.

This report provides useful guidelines for banks, which must now decide how they can best respond to this desire for convergence. The report analyzes the results from a survey study, answering banks’ questions regarding what level of support to provide; how they are organized; what companies they prefer to work with; how important the global reach of the bank is; and what role the local banks can play. These are but some of the questions for which this report provides an overview and recommendations for action.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned subsidiary of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

3

Introduction

4

Integration of Cash Management and Trade Finance

7

 

Growth of Open Account Transactions and the Impact on Trade Finance

9

 

Growth of Supply Chain Finance

11

 

Need for Working Capital Efficiency Drives the Merger of Cash Management and Trade Finance

12

Survey Results

15

 

China

18

 

India

19

 

Korea

20

 

Spain

21

 

Italy

22

 

Germany

23

 

Explaining the Varying Degree of Integration Among Individual Countries

24

How Do Banks Respond?

27

 

The Role of Local Banks and Challenges Ahead

27

Impact of the Crisis

29

 

Liquidity Management

29

 

Non-Decline of Documentary Credits

30

 

Alternatives to Documentary Credits

33

 

Impact on Cash Management

33

A Roadmap Towards Integrated Cash and Trade

35

The Challenge for Local Banks

38

 

Sketching a Possible Model

38

 

Advantages and Disadvantages of Outsourcing

40

 

For Local Banks, Supply Chain Collaboration Is the Goal

42

Appendix

45

 

Impact on OECD and Non-OECD Trade

45

Leveraging Celent’s Expertise

53

 

Support for Financial Institutions

53

 

Support for Vendors

53

Related Celent Research

55

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